Acts of God: Responsive supply chains hold the key
In March this year, an earth-quake followed with a Tsunami caused widespread disruptions in global and local supply chains. While companies, particularly in the Electronics and Automobile industry, rushed to put their operations back on-track; a small minority of their brethren were (and still are) also burning their midnight oil albeit making plans to exploit the opportunity presented to them.
The nuclear industry, for instance, faces a change in the demand pattern. The radiation leak at Fukushima gives a new hope to the French nuclear industry who have bet on the expensive, super-safe, third generation EPR reactors; in contrast to their Korean and American competitors who offer a cheaper albeit less safe alternative. With the tables seemingly turned (read more here), French nuclear giants such as Areva and EDF are cranking up their supply chains to tap the possibility of orders coming from China and India.
Likewise, in the cut-throat competitive world of automobiles & electronics, it is usually a zero-sum game. A company's loss is its competitor's gain (haven't we seen that in the case of Nokia & Apple in the Smartphone segment; or in Toyota's poor showing due to quality problems in 2010 bumping up its competitor's books). So, when Honda's plants in the US face production cuts because of shortage of critical Japanese components, the vacuum created in the US market is likely to be exploited by Ford and other competitors (reason I say Ford is because it seems aptly poised to regain the US market-share given its strong showing in Q1 this year).
Comments
Hi Amit,
Post earthquake/tsunami learnings do highlight facts of need of agility and various strategies for mitigating disaster scenarios. However, given this, the next stage is evaluation of alternatives to situations like these. If i start with the example of auto industry (zero sum game scenario), any excess capacity either in terms of alternate plant locations or flexibility calls for increased costs either in inventories, capital costs or transportation costs inturn lowering competetivenes in market. What companies need is a conscious call of investing in above alternatives v/s its ability to regain market share in terms of cost. I am quite confident that CXOs would have had this kind of disaster in their risk framework but extent of this disaster would have been attributed to an extremely low probablity (Black Swan) and hence lowering its feasibility for compensating it in supply chain.
The acts of Gods would be required to be dealt in patience. Fundamentally strong companies would emerge back to regain their share albeit only with higher motivation and innovations.
Posted by: Alhad Pofali | May 10, 2011 7:34 AM